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ISSUANCE OF PRIVATEPLACEMENT BY ACOMPANY
Submitted in Partial Fulfillment of the Requirements for Post GraduateDiploma in Management
Legal Environment of Business
Institute of Management Technology
2014-2016Group 9
Aalok Joshi (140102002)Gautam Aggarwal (140101055)
Lahar Solanki (140103089)Priya Goel (140102096)
Rahul Mishra (140102101)Siddharth Dhamija (140101170)
Surabhi Sharma (140101181)
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Content Layout
What is Private Placement?
What are the Forms of Private Placement?
Facts of the Case: Sahara V/s SEBI and Supreme Court of India
The Judgment: Sahara V/s SEBI and Supreme Court of India
Saharas Stand
SEBIs Stand
Supreme Courts Verdict Loopholes Exploited by Sahara
Draft Rules, Act 2013
Industry Impact
Loopholes in Draft Rules, Act 2013
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What is Private
Placement?
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What is Private Placement?
As per Section 42 of the Companies Act, 2013, a private placement
any offer of securities or invitation to subscribe securitieto a select group of persons by a company (other than bway of public offer) through issue of a private placemeoffer letter and which satisfies the conditions specified in thsection including the condition that the offer or invitation ismade to not more than 50 or such higher number of personas may be prescribed in a financialyear
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What are the Forms of
Private Placement?
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What are the Forms of Private Placement?
Private Investment in Public Equity (PIPE) and Standby EquDistribution Agreement (SEDA) are also forms of private placemen
Preferential Allotment
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Facts of the Case:Sahara V/s SEBI and
Supreme Court of India
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Facts of the Case: Sahara V/s SEBI andSupreme Court of India
Sahara Group of Companies issued OFCDs to the public under the guise of a private placement
Company collected over Rs 17,656cr from more than 2 crore investors in a period of 3 years
SEBI issued a show cause notice to Sahara on the basis of a complaint calling for information on the issued
Sahara refused to divulge information on the grounds that SEBI lacked jurisdiction
SEBI responded by issuing another show cause notice to Sahara that securities issued involved 50 or more pthus needed to be listed on the stock exchange
Sahara appealed against the SEBI order before SAT
After SAT dismissed Saharas appeal , further appeal was initiated against SEBI before the Supreme Court
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The Judgment: SaharaV/s SEBI and Supreme
Court of India
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The Judgment: Sahara V/s SEBI and SupremeCourt of India
Supreme Court upheld SEBI & SAT orders
Ordered to refund the amount and empowered SEBI for legal recourse
Sahara did not comply with the order
SC issued a non-bailable arrest warrant against Sahara Chief, Mr. Subrort
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Saharas Stand
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Saharas Stand
Hybrid Securities is not defined in SEBI Act or Securities Contract Regulation A
Only Central Govt. has jurisdiction in issuance of Hybrid Securities u/s 55-A ofCompanies Act-1956
Funds raised through Group Companies, associates and friends in PrivatePlacement Sections 67 & 73 are not applicable
Number of allottees or offerees is insignificant in determining whether an offerwas a public issue The intention to offer to a select or identified group would make the offer aprivate placement
Red Herring Prospectus was registered with ROC, Kanpur
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SEBIs Stand
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SEBIs Stand
OFCDs are a public issue comprising more than 50 person, liable to be listed onstock exchange u/s 73 of Companies Act 1956
Non Compliance of DIP Guidelines
Violated Regulations under Issue of Capital & Disclosure Requirements, 2009 o
SEBI
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Supreme Courts
Verdict
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Supreme Courts Verdict
The SC cited Section 55A of the Companies Act which deals with delegation ofpowers to SEBI wrt . securities
Definition of securities in Companies Act includes marketable securities whicinclusive of hybrids, thus, SEBI has jurisdiction over hybrids
SC stated that Section 73(1) of the Companies Act requires companies offeringshares or debentures to the public to list securities on a stock exchange
Intention to offer the OFCDs was to the public (more than 3 crore people).stock exchange listing was mandatory
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Loopholes Exploited bySahara
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Loopholes Exploited by Sahara
Sahara had exploited the loopholes in the previous Company Act, 1956 offerindeposit schemes under the guise of OFCDs as Hybrid instruments.
Another pivotal loophole exploited was from Unlisted Public Companies Rule2003 that does not limit the number of persons that a preferential allotment is t
be made .
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Draft Rules, Act 2013
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Draft Rules, Act 2013
A private placement offer letter shall be accompanied by an application form addressed specifically to the perso
to whom the offer is made and shall be sent to him, either in writing or in electronic mode, within thirty days ofrecording the names of such persons in accordance with section 42(7) of the Act, 2013. No person other than thperson so addressed in the application form shall be allowed to apply through such application form and anyapplication not so received shall be treated as invalid.
The proposed offer of securities or invitation to subscribe securities must be approved by the shareholders of thcompany, by way of a special resolution, for each of the offers/ invitations.
The offer or invitation shall be made to not more than two hundred persons in the aggregate in a financial year,excluding the qualified institutional buyers and employees of the company being offered securities under a sche
of employees stock option as per provisions of clause (b) of subsection (1) of section 62 of the Act, 2013. The number of such offers or invitations shall not exceed four in a financial year and not more than once in a
calendar quarter with a minimum gap of sixty days between any two such offers or invitations.
The value of such offer or invitation shall be with an investment size of not less than fifty thousand rupees perperson.
The payment to be made on subscription of securities shall be made from the bank account of the personsubscribing to such securities. However, monies payable on subscription to securities to be held by joint holders
shall be paid from the bank account of the person whose name appears first in the application.
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Industry Impact
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Industry Impact
Introduction of the term securities instead of shares Number of people who can be offered private placement in a financial year
Not a private placement = public offer
Completing allotment in 60 days
Use of proper banking channels like cheque, demand draft, etc.
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Loopholes in DraftRules, Act 2013
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Loopholes in Draft Rules, Act 2013
No Internal Control over Financial Reporting (ICOFR)
Laws of 1956 and 2013 co-exist
Work load on MCA, technology and scalability of man power required
Only two layers of subsidiaries for investment
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Questions?
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Thank You
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